Which of the following best describes how the demand curve for a public good is derived?

• A. By vertically summing the individual demand curves of all consumers
• B. By averaging the individual demand curves of all consumers
• C. By selecting the highest individual demand curve among all consumers
• D. By horizontally summing the individual demand curves of all consumers

Answer: (A)

Verified step by step guidance

1. Understand that a public good is non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability for others.
2. Recall that for private goods, the market demand curve is derived by horizontally summing individual demand curves because consumers buy different quantities at each price.
3. Recognize that for public goods, the quantity consumed is the same for all consumers, so the total willingness to pay at each quantity is the sum of individual willingness to pay.
4. Therefore, to find the demand curve for a public good, you vertically sum the individual demand curves, adding the prices (willingness to pay) of all consumers at each quantity level.
5. This vertical summation reflects the total value society places on each quantity of the public good, which differs from the horizontal summation used for private goods.